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Embry Riddle Aeronautical University (Worldwide)

Written Assignment: Airline Product Offering (MBBA 523)

Edwin Udeh

October 2015

Abstract

The deregulation and privatization of the airline industry have brought about the emergent of Airline business models. Deregulation phased out government regulated fares and routes increasing competition and revenue. Airline business models main objectives are to minimize operational costs and fares and to maximize profit based on cost leadership differentiation and focus strategy. This research paper will review, compare and contrast between two product models (Full service carriers and Low cost carriers) in the air passenger airline using Ryanair and Singapore Airlines as a case analysis.

Contents

Introduction 4

Comparison between Ryanair and Singapore Airline using five key product features 4

Critical differences 6

Compare the history of the airlines with metric on total revenue 7

Business strategy 9

Conclusion 10

References 11

Introduction

The air transportation in the US was transformed as a result of deregulation and privatization that took effect in 1978. The deregulation in the airline industry eliminated the government policies that control the airfare, the route to fly and regulate the entry markets. Deregulation and privatization have increased the airlines competition and the domestic yield have been decreasing (Guillia and Ashish, 2004) In order to remain viable and competitive most airlines have improved on their business models, introducing all kinds of strategy that reduce operational cost, low fares and increase revenue. This report has been prepared on two airlines which are Ryanair and Singapore airways. Both the airlines have been prominent in offering the best possible services to their customers. The strategic business development plan for both the airlines has been clearly analysed in this report. Business expansion plan includes introducing effective marketing and service plans through which the best services can be rendered to the clients. Service comparison has been done with an intention of evaluating the best process that would help in increasing the sales (Franke 2004).

Comparison between Ryanair and Singapore airlines using five key products features as a frame work

Doganis in his text book published in 2010 (Airline economics and marketing) introduced five key products features. Its emphasis was that airline should decide what kind of products to offer in the different markets it has chosen and be very specific. Airline companies should consider its overall business strategy that will have emerged as a result of its demand analysis and forecast. According to the CEO of Cathy Pacific (Tony Tyler) in a statement in February 2009, stated that the product they offer must be so excellent as to clearly differentiate them from their competitors. The comparison between Ryanair and Singapore Airline will be examine by the use of Doganis five key product features as a framework. Doganis suggested that every airline potential customers are influenced by the five key product features in making travel decision and more importantly in choosing between airlines. The five key product features are price, schedule, convenience and image. Ryanair and Singapore airlines are two prominent airline service providers that aim to provide the best possible services to the clients. The company offers the best deals and travel offers which is required for retaining the clients. Both the companies have Boeing airbuses, which has been uploaded with latest security features. Different destination options have been provided by the companies to the clients. This has been done by the company by venturing into tie-ups with different airline service providers in the world (Alamdari 2002).

Price: Low price air services included offering to the clients, low-budget carriers. The price of the tickets is lower than the charges offered by the home service providers. Such factors have a direct and major impact on the competition and the price offered by the rival companies. European flights have basically concentrated on offering low price services to the clients. The benefits and other services associated with low price services are quite less, as compared to other service providers.

Schedule: Airline service providers plan to schedule more number of flights, which would help in increasing the sales of the company. For this, an analysis is done for evaluate the favourite travel destination of the travellers. This helps in scheduling the number of flights and offers the best and feasible services to the clients (Mason 2005).

Comfort: Travellers look forth for comfortable and timely travel plan. Through this method, the airline companies aim to attract the attention of maximum number of clients. Low priced services and travel plans help the company to remain connected with the travellers. This is also required for sustaining tough competition in the industry. Attempt has been made to provide maximum comfort to the travellers, as this helps in retaining clients and improve the performances of the company (Dobruszkes 2006).

Convenience: Better services and facilities has been provided to the clients. This has been done for improving the customer experience with the company. By adopting innovative strategies and methods, it is possible to increase the sales and value of the services rendered by the companies.

Image: Brand image has been positively built-up by the airline companies. This helps in increasing the value of the services that has been proposed to be offered to the clients. For this, customer expectations from the brand value have been analysed.

Ryanair operates over 300 Boeing 737-800 with a total fleet size of 319 aircraft. The airline serves over 30 countries and their cities in the Europe and, Morocco and Israel. With Ryanair airways, the flight charges from Europe to the UK are approximately 250 pounds. Singapore Airlines serves over 64 destinations with strong presence in 35 countries of the six continent from its primary hub in Singapore. Singapore Airlines operate over 109 fleet size aircraft mostly with Airbus A380. Singapore airlines, charges from Singapore to UK 1087 British pounds.

Critical differences

Service quality, price, and the destinations selected by both the companies are some of the critical factors that impact the services. Ryanair is known to render low priced services to the clients, while Singapore airlines aims to increase positive customer experience with the company (Kangis, O’Reilly 2003).

Compare the history of the airlines with metric on total revenue

Table 1

EUR million except where stated	FY2014	FY2015	Change
Revenue	5,037	5,654	12%
Operating profit	659	1,043	58%
Operating margin	13.1	18.4	+5.4 ppts
Net profit	523	867	66%
Gross cash	3,242	4,796	48%
Gross debt	3,084	4,432	44%
Net debt/(cash)	(158)	(364)	130%
Passengers million	81.7	90.6	11%
Load factor %	83%	88%	5 ppts
Average fare EUR	46	47	1%
Total rev/pax EUR	62	62	1%
Cost per pax EUR	53.6	50.9	-5%
Cost ex fuel per pax EUR	28.9	28.9	0%

Ryanair FY2015 financial and operating highlights Source: CAPA – Centre for Aviation, Ryanair

Ryanair is one of the oldest and cheapest airline service providers in the world. At present, the company offers around 1,600 daily flights from various bases in the world. There are different service destinations that are being serviced by the company. The first international operational activities took place in the year 1986, and since then the company has been offering different types of services to the customers at the lowest price. Ryanair in the second quarter of 2015 achieved a double digit growth in its net profits. This was as a result of revenue per seat growth outpacing cost per seat growth. After Ryanair dip in profit in 2014, it has reported two quarters of earnings growth and reconfirmed its position as European most profitable airline. Ryanair has raised its 2015 net profit guidance and expects a result that is around 45% higher than last year.

Figure 1

Source: CAPA – Centre for Aviation, Singapore Airlines Group

Singapore airlines were formed in the year 1947, and commenced operational activities since 1972. At present, the company offers world’s largest Airbus services to the clients. The company drafted policies for improving the quality of services rendered to the clients. Presently the company has offered different types of services through which the profit earnings ratio has been increased (Darin, Luengo-Prado 2004). Singapore Airlines group in the first quarter ending 31st March of 2015 reported an improved profit driven by a recovery in revenue. The airline increased its operating profit by 58% amounting to 318 million US dollars (SGD 409.4 million) which operating profit represent the highest annual profits since 2011.

Table 2

Services	Ryanair	Singapore
Scheduling of the flights	High	High
Travel charges	Low	Moderate
Options for the services	High	High
Marketing	High	High

Airlines Service Structure

Business strategy

The business strategy for Ryanair has been to render quality services to the clients, at a reasonably lower price. As per the strategy of the company, the management work towards increasing the overall business performances. This has been done by offering more destinations to the clients, and increase the number of travel options that has been provided to the customers. In this process, innovative strategies are adopted and implemented by the management. Strategic management for the company includes developing brand marketing process, which includes promoting the services that is provided to the clients. Through marketing and effective branding method, the managers of the company could attract clients from different parts of the world. The purpose of the company is to provide comfortable services to the clients, and reduce the price for the services (Tretheway 2004).

Conclusion

Low priced services provided by the airline companies are one of the positive factors that help in retaining the clients. Better services and facilities are some of the other features that are included in this process. The management of the airline companies work towards developing and selling different positive factors, through which the tough competition in the industry can be sustained. The strategic changes are introduced and the process is constantly monitored. Through such process, the changes intended to be implemented by the company are closely evaluated, as this reduces the possibilities of errors.

References

Alamdari, F. (2002). Regional development in airlines and travel agents relationship. Journal of Air Transport Management, No. (8), pp. 339–348.

Darin, L., Luengo-Prado, M. (2004). Are passengers willing to pay more for additional legroom? Journal of Air Transport Management, No. 10, pp. 377–383.

Dobruszkes, F. (2006). An analysis of European low-cost airlines and their networks. Journal of Transport Geography, Vol. 14, No. 4, pp. 249–264.

Doganis, R. (2010). Flying off course: Airline economics and marketing 4th ed. London Routledge.

Franke, M. (2004). Competition between network carriers and low-cost carriers – retreat battle or breakthrough to a new level of efficiency? Journal of Air Transport Management, Vol. 10, pp. 15–21.

Kangis, P.; O’Reilly, D. (2003). Strategies in a dynamic marketplace. Journal of Business Research, Vol. 56, pp. 105–111.

Mason, K. (2005). Observations of fundamental changes in the demand for aviation services. Journal of Air Transport Management, Vol. 11, pp. 19–25

Ryanair: Retrieved from http://ww.ryanair.com

Singapore Airline: Retrieved from http://www. Singapore air.com

Tretheway, M. (2004). Distortions of airline revenues: why the network airline business model is broken. Journal of Air Transport Management, Vol. 10, pp. 3–14.